All the major currencies bounced this week, though they are still down YTD and for the last year. The weakest was the EUR (recovering 2.4% of last week's 2.6% drop) reflecting hopes that the crisis in Italy and Greece has been resolved. I am not holding my breath. JPY was the strongest, up 4.1%.

Stocks were mixed this week, with the Dow up 0.1%, the S&P 500 down 0.8%; gold stocks as measured by HUI were down 5.4%. Japanese stocks were slightly higher, with the Nikkei up 2.4%. All four indices are much lower YTD and from one year ago, with the Nikkei leading the way, down 29%.

The Dow and the S&P 500 remain below their lows of 2009 (3.2% below and 2.4% below respectively) in spite of their nominal "gains" when measured in ever depreciating dollars. Japanese stocks are more than 20% lower. Gold stocks, which bottomed in late 2008 at 6.45g, are now trading 64% higher at 10.6g.

Commodities were mixed, with crude oil and coffee rising again this week. Copper regained some of last week's loss, up 3.8% this week. Silver and cotton each declined 1.5% for the week.

All the commodities on our list are lower YTD and compared to a year ago, with cotton showing the most weakness (down about 45%) while silver and crude oil show the least.

Volatility is high as rumors circulate about the latest bailout plan, change in leadership, and massive public demonstration. Do not let this fool you: governments will create the currency to kick the can down the road. It's a game of musical chairs, and nobody wants the music to stop on their watch.

But it's not an all-or-nothing game, either. Especially in Europe, there are many possible outcomes: dramatic restructuring into a United States of Europe with countries essentially devolving into provinces; Germany pulling out and leaving the rest of Europe to fend for itself; some or all of the PIIGs getting kicked out of the euro and reverting to their former currencies; and so on. What all of these scenarios have in common is massive currency debasement.

Bad debts have to be liquidated, one way or another. And while that sounds deflationary, it will trigger currency creation in unheard-of proportions as the "too big to fail" banks, corporations and governments are kept afloat.

Keep an eye on the half-life of the dollar:

There is plenty of room at the bottom of this chart for a gradual default on all the debts, public and private, that can never be paid back in honest money. But don't be surprised when at some point, maybe next week, maybe next year, or maybe next decade, the markets suddenly wake up and smell the coffee – and realize that they have been conned. By that time, you want to be as far away from fiat currencies as possible.

Also expect a gradually tightening noose of capital controls, increasing taxes, and encroachments on civil liberties as standards of living fall. All these things will be done "in your best interest", to "create jobs", to keep you "safe", and make sure "the rich" pay their "fair share". This gradualism may also give way suddenly to a declaration of war, a state of emergency, martial law or an outright dictatorship – possibilities you have to prepare for.

Watch for buying opportunities and continue to accumulate physical gold, silver, platinum and high quality resource stocks. Diversify your geopolitical risk by having some of your savings (precious metals and investments) outside of your home country. Have a place which you and your family enjoy that you can slip away to if necessary. Hope for the best, but prepare for the worst!

This Week's Market Action

All the major currencies are down for the week, YTD and for the last year. The weakest was the EUR (falling 2.6%) reflecting increasing concerns about Italy, Greece, and the whole future of Europe. JPY was the least weak, down only 0.9%.

Bonds were lower again this week, with SHY down 1.4%, and the 20 year TLT dropping 2.1%. Over the longer term, TLT is close to breaking even for the year, while SHY is down around 20%.

Stocks were little changed for the week, with the Dow up 0.05%, the S&P 500 down 0.5%, and HUI up 0.8%. Japanese stocks were the exception – sharply lower, with the Nikkei down 4.2%. All four indices are much lower YTD and from one year ago, with the Nikkei leading the way, down about 30%.

The Dow and the S&P 500 remain below their lows of 2009 (3.2% below and 2.4% below respectively) in spite of their nominal "gains" when measured in ever depreciating dollars. Japanese stocks are more than 20% lower. Gold stocks, which bottomed in late 2008 at 6.45g, are now trading 64% higher at 10.6g.

Commodities were mixed, with crude oil and coffee rising, while copper, silver and cotton declined for the week.

All the commodities on our list are lower YTD and compared to a year ago, with cotton showing the most weakness (down over 45%) and silver the least (down only 4% for the year so far).

Back in March, I discussed the Half Life of the Dollar. In that article, I pointed out that the USD has been losing half of it's value every four years… and that trend remains solidly in place. But currency value decay, like radioactive decay, only appears smooth and steady when you stand back and look at the overall curve. Examined in fine detail, it comes in fits and starts, and with plenty of ups and downs!

A short-term uptrend in the midst of a long-term decline is known as a bear market rally. What might such a rally look like this time?

The USD's 200 day moving average is now 20.6 mg, implying a $1510 gold price – a level we have almost reached. If that resistance level is tested and holds, the rally may be over soon.

But when the USD hit its all-time low of 16.4 mg on September 6th, it was almost 24% below the level predicted by the half-life decay curve. In order to return to the curve, the dollar would have to rally to 21.4 mg – equivalent to a gold price of $1450 in USD. And there is no reason a rally should stop there; some overshoot should probably be expected before gravity reasserts itself and the USD resumes its downward trend. An "equal and opposite" over reaction of 24% could carry the USD to 26.5 mg – equivalent to a gold price of $1172.

Concerns about Europe and a global economic slowdown are causing investors to shift away from risk and towards the safety of cash positions. For some, this means liquidating gold positions. But for many, it means adding to gold positions. Metals without gold's monetary pedigree, especially silver and platinum, will probably trade lower in gold terms, creating significant buying opportunities. Resource stocks may also be hit hard, giving buyers a chance to scoop them up at bargain prices.

There are absolutely no signs of any real fiscal or monetary reforms anywhere in the world. Even the Swiss have abandoned their conservative economics and pegged the CHF to the EUR – tying their currency to a sinking ship. The tsunami of money creation I expect to see in the next few years will sweep all of the world's government controlled currencies to new lows… And you want to be on the high ground of gold and other tangible assets when that wave hits.

Take full advantage of this rally in the USD, EUR, and other paper currencies to maximize your risk-free gold holdings and increase your exposure to assets that will grow in gold value as governments seek to outdo each other in providing economic "stimulus" in the months ahead.

It is fascinating to see that home prices are now lower than at any almost time since 1890, even lower than the depths of the Great Depression of the 1930s… The one brief exception being the dramatic "undershoot" of the USD's value in 1980, following the massive stagflation of the 1970s triggered by the removal of gold backing of the USD.

I have also added a chart page which will give a weekly update on a few major currencies, equity and debt markets, and commodities. As I am traveling this weekend, there may be a hiccup in updating it until the following weekend, but I will try to keep it up to date following that.

Last week, the EUR was weak, falling 0.8% while the USD strengthened by 1%. Reflecting the USD's strength and a lack of viable alternatives, short term bonds rose 1.1% and long term bonds rose 2.1%. All of the currencies are still dramatically lower YTD and from a year ago, however.

Stocks were lower, especially the Nikkei 225, which fell 1.9%. THe exception was gold stocks, with the HUI posting a 2.7% gain.

Commodities were mixed, with cotton leading the gainers, up 4.6%, and coffee leading the losers, down 5.2%. Silver was off 1.6% while crude oil and copper showed gains of 2% and 0.4% respectively.

One commodity I would be looking closely at is platinum. It is currently priced below parity with gold, a rare occurrence… and I suspect that although dramatic economic news might push it lower still, in the medium to long term, it should revert to its customary premium to gold, making it a great way to "grow your gold".

Markets have reacted by a move to the safety of gold – the only true cash position – and away from the risks of most currencies, stocks and commodities. Major currencies are at all-time lows. Commodities, while down hard, are generally still higher than they were at the bottom of the 2008 credit crisis. Major stock indices, however, are lower than they were at the bottom of the last crisis.

Here is a quick scan of the markets, priced in gold, as of August 10th:

USD: 17.55 mg, a new all-time low
CAD: 17.68 mg, a new all-time low
EUR: 24.98 mg, a new all-time low
JPY: 0.227 mg, a new all-time low

Silver: 0.672 g/oz, has given up all it's YTD gains, but is still 82% above its 2008 lows
Platinum: 30.79 g/oz, is now cheaper than gold for the first time since December 2008
Copper: 155.40 g/tonne, is still 57% above its 2009 low of 99 g/tonne.
Crude Oil: 1.46 g/bbl, is 30.3% higher than its 2009 low
Coffee: 41.22 mg/lb, is down 22.3% for the year so far
Cotton: 17.38 mg/lb, down 63% from its 2011 high, but still 30% higher than its 2009 low

Dow Jones 30 Industrials: 188.16 g, down 26.3% YTD, and 14.6% below its 2009 low
S&P 500: 19.67 g, down 29.1% YTD, and 13.4% below its 2009 low
NASDAQ Composite: 41.79 g, only 2.2% below its 2009 low
AMEX Gold Bugs: 9.69 g, down 23% YTD, but 50% higher than its 2008 low

Short term bonds, as measured by the SHY fund, are at all-time lows. The long term bond fund, TLT, although almost as high in USD as it was at the height of the 2008 credit crisis, is worth less than half as much gold.

Some stocks are doing very well. AAPL, for instance, has given up most of it's gains for the last year, but it is still worth more than twice what it was at the bottom in 2009.

The federal minimum wage is now 127 mg/hr – the lowest it has ever been. When introduced in 1938 at 25 cents/hr, the rate was 222 mg/hr!

My advice is to stick with the safety of gold. This is the time to be in cash, and certainly not the time to be in risky fiat currencies. Platinum may be a decent speculation, however. It is very unusual to be able to buy an ounce of platinum for less than an ounce of gold. While it may get cheaper still if the economy continues to weaken, I think platinum's relative rarity and many important industrial uses make it worth the risk over the long term.

This is reflected in the value of bonds, as SHY closed the week at a new all-time low of 1.638 grams, down 1% from a week ago and down 24% from a year ago. 30 year bonds also set a new low last week, though they managed to recover a bit on Friday. TLT was down 1.1% for the week and down 26% from a year ago.

Equities were a bit higher for the week, with the DJIA up 0.7%, the S&P 500 up 1.2%, and the Nikkei 225 up 0.9%. US stocks were 8% lower and the Nikkei was 3.8% lower than one year ago. Gold stocks followed suit, rising 0.9% for the week; they remain down 3.8% from a year ago.

Commodities were mixed, with crude oil and silver higher, and copper, coffee and cotton lower. Crude rose 0.7% to 1.92 g/bbl and silver was 3% higher at 0.77 g/oz. Coffee was the biggest loser, dropping 5.3% for the week to 46.9 mg/lb; even so, it is still 11.8% higher than one year ago. Cotton lost 3.2% to 19.2 mg/lb, while copper fell 0.5% to close at 85.4 mg/lb.

With all the economic storm flags flying, I would suggest maintaining only small speculative positions in any of the major fiat currencies, and getting the bulk of your savings into the safety of gold – in your physical possession or as close to it as you can manage. While some would say that with gold at all-time highs this is a bad time to buy, I disagree. It would not surprise me to see gold prices lower in the next few months, but that simply argues for a small position in USD or EUR to take advantage of any such development. The risks of social, economic, political or military surprises is much too high to entrust the bulk of your assets to such risky positions. If you can't bring yourself to buy a large amount of gold at these prices, I urge you to buy smaller amounts regularly, regardless of price.

There is no way out for the USD and the other major fiat currencies. Debt levels are unsustainable, and the only politically acceptable solution is the subtle default of currency depreciation. Don't be trapped! Move your savings and cash balances to the safety of gold and your investments to things that can outpace the coming inflation.

And speaking of the US economy…

The Dow Jones Industrials, which closed today at 242.76, have retreated to their lowest level since March 20th, 2009, and now stand only 10% above their 2008/2009 financial crisis low of 220.22, set 10 trading days earlier on March 6th. Once that level is breached, prices will have rolled back to the level of January 1991, with the next support at about 200, and below that at 180 (which was the low for 1990 and the high just preceding the "Black Monday" crash of 1987. The S&P 500 shows almost exactly the same picture.

US Treasury bonds continue to fall, with SHY making a new all-time low in gold, and TLT just 2% above it's all-time low, even as they approach their old highs in dollar terms.

This week we've added coverage of natural gas to the site, another commodity sitting near it's all time lows. Home prices were also updated this week, and they are – surprise! – also making new lows.

Commodities were mostly lower last week, with crude oil, silver, copper, and coffee down, while cotton was up 5.4%. Commodity prices have risen significantly over the last year, however. Silver and coffee are up over 50%, cotton is up 63%, crude is 6% higher, and copper is 7.4% higher from one year ago.

The Canadian dollar is following close on its US cousin's heels, and the Euro and Yen, while they gained a bit last week, they are both down solidly over the last year. The Swiss franc is the one currency I track that seems to be holding it's own. Take a look at the currency charts for more.

Of course, if you own bonds, or large-cap stocks, real estate, or hold lots of currency (whether USD, CAD, EUR, or other), this sounds all sounds very depressing. But it is important to remember that it also means these things are ON SALE for those who do their saving in gold. They may get cheaper yet, so I'm not suggesting that you go "all in" at this point, but by following two simple rules, you will be ready to take full advantage when the time comes.

First, keep your "cash" and savings in gold, whether physical, in GoldMoney.com, in ETFs or closed-end funds (I use a combination of all of them for my own savings) and

Second, monitor your other investments' values in gold to be sure they're growing (and be ruthless about cutting your losses when they're not). If it isn't growing in gold value, you're better off just holding metal until you can find something that is growing. Don't forget that the USD and other currencies are potential speculations that make sense from time to time, but only hold them when they're appreciating in gold terms; at all other times, hold as little as possible.

Do these things, and you will find that the whole world will eventually be yours at fire-sale prices.

This is how great fortunes are made!

In February of 2001, the US Dollar would buy about 121 mg of gold. In March of 2011, it will buy about 22 mg of gold, a decline of 82%. This drop has been gradual, and the intervening years have been filled with the sell-offs and rallies that are common to all markets. This period has been characterized by massive and growing public and private debts, central bank manipulation to keep interest rates artificially low, and the creation of trillions of new dollars to keep the financial system liquid and stave off recognition of personal, corporate, municipal, state and federal bankruptcies.

But a closer look reveals that the decline has not been linear, but logarithmic – just like the decay rate of radioactive particles. Physicists refer to the rate of this decay as a "half-life"… Knowing this number lets them answer the question, "How long will it take for the radiation level to fall in half?"

In the case of a currency, how long does it take for its value to fall in half?

It turns out that over the last 10 years, the half-life of the US Dollar has been 4 years. In other words, every 48 months, the dollar loses half of its value! Here is a chart:

So unless something changes (for better or worse) we can expect that by the end of 2015, the dollar will be worth about 10 mg of gold (or put another way, that an ounce of gold will cost about $3,000). The key phrase is "unless something changes".

What could change? Invention of a new technology that could extract large quantities of gold cheaply, perhaps from sea water… Or a dramatic rise in real interest rates, the sort of thing engineered by Paul Volker to end the inflation of the 1970s. These things could push the relative value of the dollar up, and the price of gold down.

On the other hand, there could be a dawning realization that the dollar is doomed – that the US Government cannot possibly repay its obligations without simply creating the dollars to do so out of nothing – leading to a dollar collapse. If this happens, the dollar, like so many other fiat currencies before it, will have no value at all. Just like the previous US currencies, the Continental Dollar and the Confederate Dollar, or more recently, the Zimbabwe Dollar, it will become of historical interest only. In this case, it makes no sense to talk about a gold price at all… as the collapse gets underway, the price of gold will go higher and higher without any limit, until no cares about dollars any more. Those holding gold and other real assets will preserve their purchasing power, while those holding dollar-based financial assets such as bank accounts, CDs, T-bills, government and corporate bonds, and even most stocks, will be wiped out.

Psychologists often talk about normalcy bias, the tendency of people to assume that things in the future will be about the same as they have been recently. Usually, this works out fine; but from time to time, a "black swan" appears that causes things to change directions unexpectedly.

But what should we expect the dollar to do? Should we expect that next year its value will about the same as it has been recently? Or should we expect the decay of the last 10 years to continue? I think the latter is the most likely. And then there are the black swans, the things that are very hard to predict, but are always a possibility that must be considered and prepared for.

By monitoring prices in gold, keeping cash balances diversified in precious metals and multiple currencies, and by investing to grow your net worth in terms of gold, you will be well positioned for any eventuality. I am working now on some strategies to take advantage of the half-life of the dollar – let me know if you are interested in hearing more!

Ultimately, this is all about freedom… The more I work out the implications of "gold thinking" and try to free my mind from the mesmerizing influence of fiat currencies, the more I realize that it isn't just the money, but the freedom to conduct my business and my life the way I want to that is at stake here. It seems to me that most people start by moving some assets offshore, then a few of those go further and move themselves offshore, but very few actually go so far as to move their minds offshore! And a big part of this is the constant drumming of the fiat currency message that bombards us from all directions. From the media to the gas station to the grocery store to the bills we get every day in the mail, not only is the world drowning in dollars, but our minds are drowning in dollar prices! It is a powerful hypnotic drone that keeps us in thrall to our monetary overlords, regardless of where we do our banking, set up our businesses, or make our homes.

At the Casey Conference in San Diego, Richard Russell told a story about his wife, and her preference for dollars, versus his preference for gold. He referred to his wife as a "Dollar Bug". She's not alone: there are millions of times more Dollar Bugs in the world than there are Gold Bugs or Silver Bugs, and the Dollar Bugs are far more rabid than even the most outspoken Gold Bugs. Perhaps "Dollar Zombie" would be a better term… Zombie banks aren't the worst of it: we are living through the Dollar Zombie Apocalypse, right now!

Next time, I'll look at some ways of fighting back against the Dollar Zombie menace. Until then, keep your profits growing, in gold!

Hi Charles,

Thanks for your great insight. I have been planning to buy gold and silver early next year and I just have 2 questions.

1. Why is gold priced in US dollars and what are the chances that gold will be priced in euros or yuan when the dollar collapses?
2. Should I stock up on silver or gold?

Thank you in advance,
Kenneth

PS: Great website by the way.

Hi Kenneth,

Thanks for the kind words!

Regarding your questions, 1) gold is already priced in several currencies – the London Bullion Market Association, which publishes the London AM and PM fixes, does so in USD, GBP and EUR each day (updated twice a day). The World Gold Council publishes daily prices in 15 currencies, updated weekly. I think that the USD price is the most widely reported number, but certainly not the only one available.

As to whether the USD or the EUR will be the first to collapse, that's anyone's guess! All the world's fiat currencies are in a race to the bottom… that's why your second question is so important! And my answer to 2) is YES! The real questions are, how much, and in what form.

I see physical gold as the best form of cash. Gold is not an investment. It will never make you rich, it just sits there. It doesn't grow, it doesn't pay interest or dividends, it doesn't make anything, or improve the world in any way. It is just some lumps of metal. BUT: It is not anyone's liability. There is no counter-party risk. No bank failure or currency crisis can cause it to disappear. No government can inflate its value away. Your only risk is physical theft. Thousands of years of experience shows it will keep it's value while other forms of money come and go. So while gold cannot make you rich, it can keep you from becoming poor!

By physical gold, I mean coins, bars, and other forms of the metal that you have direct custody of, stored in a safe place you have direct access to and control over. Once you give it to someone else to take care of for you, you begin to lose the essential protection of gold, because you now have a partner you have to trust to give your gold back when you need it. This applies to bank safety deposit boxes, gold certificates, and other storage programs. The reason to take on this risk is convenience and efficiency of transactions, and to mitigate the risk of physical theft. You have to judge that trade-off for yourself. My suggestion is to diversify your holdings so that if one approach fails, you have not lost everything.

Other forms of gold ownership, such as ETFs like GLD, closed end funds like PHYS and CEF, and so on, are really stocks that should hold their value in terms of gold, and can be used as a holding account for money that is awaiting investment elsewhere, rather like money market funds. But they are not cash, and may not be good vehicles for long term savings, as they carry lots of counter-party risks.

How much gold to own is also something you need to decide for yourself. How much cash do you feel comfortable holding? The more you have, the safer you are if there is a crash or other financial disaster, but the less you have at work growing for you. If you are confident about the future, hold very little gold, and invest the rest in stocks, businesses, real estate, and other opportunities that will be worth more and more gold every passing year. If you are worried about the future, hold lots of gold, and invest only what you can afford to lose.

Silver, which has extensive industrial uses but very little monetary use at the moment, is more of an investment – it can gain or lose value relative to gold. I see it as a speculation, but one that is much less risky than the USD or other fiat currencies. It shares many of gold's desirable characteristics, so it makes sense to include it in a diversified plan. Keep in mind that it is much bulkier than gold, and has much higher storage costs. But this bulk also means that silver coins could be useful for small transactions where no gold coin is small enough. And don't forget that while it can rise in gold value, as it has for the last few months, it can also fall in gold value – sometimes a lot.

I hope this is helpful. Keep those questions coming, and keep your wealth growing, as measured in gold!

Cheers,

Sir Charles